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David Cartwright

Construction, Economy - 5 min read

Top 10 Challenges Facing Small Construction Companies

David Cartwright

Senior Marketing Manager - Software

Sep 5, 2017 11:52:00 PM

The construction industry is one of the major drivers of the Australian economy. It is the third largest industry after mining and finance and constitutes 8% of the GDP. This industry produces buildings and infrastructure that are key to the operation of other industries. 

The construction industry in Australia is also dynamic. However, small construction companies in Australia face challenges just like all other construction companies in the world. Here are the top 10.


1. Skilled Labour Shortage

The construction industry is on a steady rise and remains heavily dependent on manual labour, even with the uptake of construction technology. However, Australia has an ageing workforce, and as the construction industry continues to grow, the industry is having a hard time recruiting skilled workers to satisfy the rising demand.

Many young Australians today do not find construction jobs lucrative and are opting for other careers. Hence there is need to improve training programs and increase construction apprenticeship opportunities.


2. Rising Cost of Raw Materials

Contractors bear the risk of cost changes due to fixed price contracts and speculative home construction. The cost of land and raw materials can change rapidly. With rapid change in prices, small construction companies have less leverage, and are greatly affected by cost variations between the time the project commences and when it ends.


3. Slow Invoicing and Payments

Small construction businesses often have a problem regulating cash flow because they don’t employ suitable invoicing systems. A progress payment schedule can help outline what is expected at different phases of the project and determine when each phase of the project is considered complete. Without regular progress payments you can have too many resources tied up in one job, which can significantly affect cash flow.


4. Undercapitalisation

Capital requirements to pursue the most profitable projects can never be underestimated. Many small construction businesses underestimate how much money they are going to need to fund projects until they receive progress payments. Working capital is critical to the success of every construction project and companies should ensure they have the right cash flow to avoid making bad decisions. Starting out undercapitalised may be the start of a downward spiral you may never recover from.


5. Inadequate Planning

It is critical that you lay out a comprehensive business plan. It should cover finances, operations, and marketing your construction business, among other aspects. This will give you a clear perspective of your cash and manpower and help you not to overestimate or underestimate your capabilities. You should map out the details of all your project stages to stay on track.


6. Lack of Safety Training

Poor safety training is a recurring problem in the Australian construction industry. As demand grows in the industry, companies can cut corners as they try to maximise profitability. They can reduce their spend on safety and training which puts them at a risk of incurring heavy losses due to increased insurance and litigation costs caused by building non-compliance.


7. Technology Adoption

Technology has transformed the construction industry and companies that are unable to keep up risk extinction. It plays a key role not only in the day-to-day operations, but also when competing for projects. Construction technology includes cloud-based software, mobile, wearable, IoT technology and estimating technology. Acquiring capital to invest in technology can be a challenge to small construction companies.


8. Uncontrolled Growth

One of the greatest challenges to any company is to lose sight of the vision and capabilities. If you fail to keep pace with demand or expand without the required capital resources, the existence of your business can be threatened. Planning for foreseeable growth and tracking it so that it doesn’t get dangerously out of hand is critical.


9. High Insurance Costs

Most contractors today pay high premiums for various types of insurance. This includes; general liability for construction delays and defects, and accidents. The ever-increasing insurance costs can be crippling to a small construction company if not well accounted for.


10. Legacy Systems

While some software options may be financially unviable for smaller construction companies, others are entirely achievable and have substantial cost-saving potential. Despite this potential, many smaller construction companies are limited by the legacy systems they use. For example, conducting estimating and takeoff by hand or with an Excel spreadsheet is by no means as efficient as using a streamlined and comprehensive estimating solution like Cubit.

To discover how Cubit will drive efficiencies in your business, get a free 14-day trial below.

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